China's economy posts slowest growth since 1999

January 18, 2013|Kevin Yao and Aileen Wang | Reuters

(JASON LEE, REUTERS)

BEIJING (Reuters) - China's economy grew at its slowest pace in 13 years in 2012, though a year-end spurt supported by infrastructure spending and a jump in trade signaled the foundation for the stable growth path Beijing says is vital for economic reform may be in sight.

Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all indicated that Beijing's pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.

Year-on-year growth of 7.9 percent in the fourth quarter beat a consensus forecast of 7.8 percent in a Reuters poll and snapped a streak of seven consecutive quarters of slowdown.

The performance was at the upper end of the 7-8 percent rate economists reckon is needed to deliver on reforms essential to China's long-term development after three decades of red-hot, double-digit growth.

Full year growth of 7.8 percent was also just ahead of the poll's 7.7 percent call and, although the weakest since 1999, comfortably ahead of the government's 7.5 percent target, which just months ago seemed to some economists to be in jeopardy.

"It's kind of like a golden spot - stronger growth, but not strong enough to trigger a lot more inflationary concern. That's perfect for equity markets." said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong.

"What everybody wants is growth that's strong enough to give us peace of mind that revenues will increase and there is no hard landing risk, but not excessive, not strong enough to trigger inflation. And this is what I think we are getting. I'm bullish on China still."

Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.

China's new leaders must stabilize the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country's export-oriented growth model.

Without stability, incoming President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in March, have no chance of delivering a slew of reforms they say are needed to tackle a host of financial, industrial and income imbalances that threaten China's future.

ADDRESSING THE WEALTH GAP

China's statistics chief, admitting the country's wealth gap was "relatively large", released a recalculated indicator of economic inequality on Friday, the first time in several years that officialdom has addressed the sensitive issue head-on.

China's Gini coefficient stood at 0.474 in 2012, down from 0.477 in 2011 and from a peak of 0.491 in 2008, Ma Jiantang, the head of the National Bureau of Statistics, told reporters at a press conference on 2012 economic performance.

The index ranges from 0 to 1, with the 0.4 mark viewed by analysts as the point at which social dissatisfaction may come to a head.

China's leaders say rebalancing the economy to consumption and away from the investment and export model followed for the last 30 years holds the key to tackling inequality, but detailed data on Friday underlined the scale of that task.

While consumption made the biggest contribution to growth in 2012, with a 51.8 percent share, Q4 marked the third consecutive quarter of decline.

The fall has been driven by the government's focus on using investment spending as the main expedient to underpin an economy still levered to external demand.

Exports generate about a third of economic activity and sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2 percent contribution, data showed.

With China's consumers still relatively poor - average annual urban disposable income was just 21,810 yuan ($3,500) in 2011 - it remains too hard for the government to rely on them to help compensate for any shortfall from the export sector.

"There's just not enough money," said Liu Jiongda, 35, a manager at a Shanghai logistics company who earns just over 11,000 yuan ($1500) per month, more than half of which goes straight into a mortgage on a property he bought in 2009.

"If the government wants a so-called consumer culture, they have to cut the amount of tax I have to pay. That is simple. If I have more money then I'll be willing to spend more."

Investment meanwhile, at 50.4 percent, has picked up as the new leadership has looked to underpin a recovery with spending on infrastructure - a tried and tested method.